? The Fastest Four Minutes in Finance: Raised Federal Fund Rate
This week, the Federal Reserve????raised the Federal Funds rate by 0.25%, which puts the?short-term borrowing rate between 4.75% and 5%. But, there was also a?shift in the message?that is leading economists to believe the?rate hiking cycle is coming to an end.?
Along with this week’s announcement, the Fed also released updated economic?forecasts,?which included what is called a “dot plot” that basically maps out the policy expectations for the rest of the year. That guidance showed the majority of?Fed members believe interest rates will top out at 5.1%.?
????There was also a significant change in language in the Fed announcement. Fed chair Jerome Powell is no longer saying things like “ongoing rate increases” and now says"some additional policy firming may be appropriate."
Market expectations were for a less than 0.5% hike, and perhaps even no hike at all, following the failures of a handful of regional banks, which was due, in part to rapidly rising interest rates, in addition to the mismanagement of those banks.?
The Fed did address those bank failures and is trying to assure Americans that?the banking system is on solid footing.
It’s?not just the rate hikes?that have created banking havoc, but?the pace at which they are happening.?
This week’s rate hike is the?????9th?consecutive hike over the course of the past year. To put that in perspective, the last time the Fed raised rates for an extended period of time, they also instituted 9 hikes, but it was over a three-year period.??
It’s been three years now since the U.S. government shut the economy down over concerns about the COVID-19 pandemic. Everything economically that has happened since has happened in a collapsed timeframe, compared to a normal economic cycle, including the rapid rise in interest rates.?
The latest news by the Fed may indicate that?a return to normal is close.??
That doesn’t mean that we will avoid a recession, but it could mean that the?recession might be short-lived.??
As far as the markets are concerned, investors have been waiting for good news for a long time, and they have lots of capital to invest???
A record-high $5 trillion dollars is sitting in Money Market funds. There is a good chance that investors decide to re-deploy some of those funds into stocks at some point.??
???Markets initially dropped on the Fed announcement on Wednesday but shot up????on the next trading day after digesting the news on a deeper level.?
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Market volatility is sure to continue in the next few months, as the economic data continues to bob us back and forth like a yo-yo.??
But, there is growing optimism that at least the policy decisions are leaning in a more favorable direction, and?long term, the stock market has a lot of potential???
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